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Smart End of Financial Year strategies 2016/17

Published 1 June 2017

With the end of the financial year approaching, it’s a great time to make smart decisions about your finances. Taking action before 30 June can open up more opportunities for you.

We know that there isn’t a one-size-fits-all solution to wealth management. So we’ve outlined 12 tax-effective strategies that you may benefit from. We can help you find what strategies are right for you, so you can benefit now and also save your retirement.

For Individuals

Smart Superannuation Strategies

Six super strategies that may help reduce your tax liability whilst building your super savings for your retirement.

If you…

You may want to…

So you can…

1. Get more from your salary or bonus

Are an employee.

Sacrifice your pre-tax salary or bonus into super rather than receive it as cash.

– reduce tax on your salary or bonus by up to 34%
– take advantage of the contribution cap that applies in this financial year

2. Make tax deductible super contributions

Earn less than 10% of your income2 from eligible employment (e.g. you are self-employed or not employed).

Invest in super by making concessional contributions.

– claim your contribution as a tax deduction- take advantage of the contribution cap that applies in this financial year

3. Make after-tax contributions
to super

Have an investment in your own name.

Cash out the investment and use the money to make a personal after-tax super contribution1.

Smart Insurance Strategies

Two insurance strategies that may help you benefit from tax concessions this financial year.

If you…

You may want to…

So you can…

1. Buy insurance in super tax-effectively

– Are eligible to make salary sacrifice contributions, or
– Are eligible to receive Government co-contributions, or
– >Have a spouse who earns less than
$13,8002 pa, or
– Earn less than 10% of your income2 from eligible employment

– Purchase life and total and permanent disability insurance through a super fund
– Make concessional contributions to your super fund

Smart Super Reform Strategies

The May 2016 budget announced key superannuation (super) changes that have come under much scrutiny. With a few subsequent amendments, the Bill was put before parliament in late November and has now been passed. These new measures were designed to improve the sustainability, flexibility and integrity of Australia’s super system, most of which come into effect from 1 July 2017.

1. Introducing a $1.6 million transfer balance cap

Introducing a $1.6 million transfer balance cap which limits the amount that can be transferred to the retirement phase, where earnings are tax-free. This measure will also apply to death benefit income streams. Click here to read more.

2. Reducing the concessional contributions cap to $25,000

Reducing the concessional contributions cap to $25,000 for all taxpayers and introducing a concessional contributions catch-up regime for those with total super balances of less than $500,000. Click here to read more.

3. Reducing the non-concessional contribution cap to $100,000 pa

Reducing the non-concessional contribution cap to $100,000 pa (or $300,000 under the bring forward provisions), limiting the ability to make NCCs to people who have a total superannuation balance of less than $1.6 million and introducing transitional rules for those who triggered the bring forward rule prior to 1 July 2017. Click here to read more.

4. Increasing income eligibility for the spouse contribution tax offset

Increasing the annual income threshold from $10,800 to $37,000 for eligibility for the spouse contribution tax offset. Click here to read more.

5. Abolishing the anti-detriment payment.

An anti-detriment payment enables the refund of contributions tax paid during a fund member’s lifetime, which is then paid as a lump sum to certain dependent/s (spouse, former spouse, child including adult child) of a deceased fund member. From 1 July 2017, anti-detriment payments will no longer be able to be made. Click here to read more.

A transition to retirement (TTR) pension allows you to reduce your working hours but not your lifestyle by using TTR pension payments to supplement your income. From 1 July 2017, tax exemptions on super fund earnings for transition to retirement pensions will be removed. Click here to read more.

7. Lowering the threshold for Division 293 tax to an annual income of $250,000.

Division 293 reduces the tax concession on superannuation (super) contributions for individuals with an income greater than the limit in place. From 1 July 2017, this limit will decrease from $300,000 to $250,000. Click here to read more.

Some of these strategies are best implemented prior to the end of financial year, speak to a Modoras Planner today on 1300 888 803 or:

1 It’s important to check for CGT implications before cashing out any investments.2 Includes assessable income reportable fringe benefits and reportable super contributions. Other eligibility conditions apply.

These individual EOFY strategies were published by Modoras Pty Ltd ABN 86068034908 AFS and Credit License No. 233209. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.

For Businesses

Write-off bad debts

To be a bad debt, you need to have brought the income to account as assessable income, and given up all attempts to recover the debt. It needs to be written off your debtors’ ledger by 30 June. If you don’t maintain a debtors’ ledger, a director’s minute confirming the write-off is a good idea.

Trading Stock

Write off any stock that is damaged or obsolete. Complete a stock take (if you are not using the simplified trading stock rules) and remember that stock can be valued at the lower of cost, replacement, or net realisable value. You can use different methods for different stock items.

Review your asset register and scrap any obsolete plant

Check to see if obsolete plant and equipment is sitting on your depreciation schedule. Rather than depreciating a small amount each year, if the plant has become obsolete, scrap it and write it off before 30 June. Small Business Entities can choose to pool their assets and claim one deduction for the pool. This means you only have to do one calculation for the pool rather than for each asset.

Repairs, consumables (office stationery etc.)

To claim a deduction for this financial year, consider paying for any required repairs and replenishing consumable supplies before 30 June.

Pay June quarter employee super contributions

Super contributions are deductible in the year they are paid. The June 2017 quarterly superannuation guarantee payment is due on 28 July. However, some employers choose to make the payment early by 30 June to bring forward the tax deduction instead of waiting another 12 months.

Don’t forget yourself

Superannuation can be a great way to get tax relief and still build your personal wealth. Your personal or company sponsored contributions need to be received by the fund before 30 June to be deductible.

Capital gains and losses

Neutralise the tax effect of any capital gains you have made during the year by realising any capital losses. These need to be genuine transactions to be effective for tax purposes. It may be possible to contribute assets with unrealised losses to superannuation in order to do this.

Directors’ fees and bonuses

Declare them before 30 June and providing the company is absolutely committed to them, you are entitled to the deduction even if they have not been paid. Again, a director’s minute is a good idea. The directors and employees only need to declare this income in the year of receipt, although they need to be formally notified of their entitlements by 30 June.

Management fees

Where management fees are charged between related entities, make sure that the charges have been raised by 30 June. Where management charges are made, make sure they are commercially reasonable and documentation is in place to support the transactions. If any transactions are undertaken with international related parties then the transfer pricing rules need to be considered and the ATO’s documentation expectations will be much greater. This is an area under increased scrutiny.

Prepayments

Small Business Entities (SBE) with a turnover under $10m can claim an immediate deduction for prepaid expenditure provided the service period relating to the expenditure is less than 12 months and will end by the end of the next financial year. Non SBE taxpayers (Turnover over $10m) can only claim prepaid expenditure that is 1. Less than $1,000; 2 Required by Law; or 3. Paid under a contract of service such as salary and wages.

Deferring income

If you receive payments in advance of the goods and services being provided and you account for income on the accruals basis then there might be an opportunity to defer the inclusion of this income until a later year.

Deemed Dividends – Division 7A Loans

Minimum repayments need to be made by 30 June under the Division 7A Loan Agreement to avoid triggering a deemed dividend.

To reduce the interest payable, consider declaring dividend early in the financial year.

Purchase of depreciating assets – under $20,000

SBE taxpayers (turnover under $10m) can claim an immediate deduction for the purchase of a depreciating assets (such as plant, furniture, equipment or motor vehicle) that cost less than $20,000. The asset must be installed ready for use by 30 June to be deductible this year.

As always these tax opportunities should only be considered where they make commercial sense. Incurring expenses simply to claim a tax deduction often will not make sense from a commercial or cash flow point of view. If your require any further information or require specific advice regarding tax planning for your business please contact us on 1300 888 803 or:

These EOFY strategies were published by Modoras Accounting (UMG) Pty Ltd ABN 81 601 145 215. This article contains general information only and is not intended to represent specific personal advice (Accounting, taxation, financial or credit). No individual personal circumstances have been taken into consideration for the preparation of this material. It is recommended that you obtain your own personal professional advice before making any financial or business decision.